The Melbourne Institute reported that Australia’s inflation in June 2025 increased by 0.1% month-on-month. This is an improvement from the previous month’s decrease of 0.4%.

Year-on-year inflation was 2.4% in June, slightly down from 2.6% the previous month. The trimmed mean, considered a measure of core inflation, rose by 0.1% month-on-month and was up 2.6% year-on-year, compared to 2.8% in May.

Currency Stability

In the currency market, the Australian Dollar to US Dollar exchange rate remained stable at approximately 0.6535.

The figures released by the Melbourne Institute indicate a modest uptick in consumer prices on a monthly basis, reversing the fall recorded in May. The fact that inflation edged higher by 0.1% in June suggests that price pressures, while subdued, are not entirely absent. On an annual basis, the move to 2.4% from 2.6% is modest, hinting that broader disinflationary expectations are still intact, albeit progressing slowly.

The trimmed mean—a metric used to smooth out volatile price changes—also reflects this trend. It increased slightly on the month and edged down over the year, showing gentle moderation, but stopping short of a swift retreat. At 2.6% year-on-year, it’s very close to the previous reading and confirms that inflation remains persistent in some sectors.

With the AUD/USD exchange rate holding steady near 0.6535, the reaction in foreign exchange markets has been muted. This implies that traders, at least for now, view the data as broadly consistent with prior expectations. No sharp repricing has occurred, and volatility remains contained.

Outlook On Central Bank Policy

Given these developments, there’s a clear signal: inflation is not accelerating materially, but it’s also not pulling back swiftly. We must prepare for a setting where the central bank may not feel compelled to alter its policy stance in the near term. In practice, this outlook reduces the probability of rate increases and increases the likelihood of a longer period of stability.

Traders may find that short-dated volatility pricing could compress further, especially if upcoming data points follow the current balance. From our perspective, it’s wise to watch for movements in fixed income positioning. If inflation data in the months ahead continue this levelling tendency, yield curve trades could shift, particularly in the belly of the curve where rate expectations are more sensitive.

There is no immediate incentive to rotate sharply away from front-end exposure, unless upcoming labour market figures surprise to the upside. A softening jobs report—or, conversely, a sudden acceleration in wage growth—could alter expectations. As we interpret it, market confidence in policy stability will hold unless pushed by such forward-looking indicators.

From our desk, the absence of currency weakness supports the argument that global sentiment toward Australia has remained relatively steady. Inflation developments in peer economies will continue to matter. If the US, for example, starts to see firmer pricing or labour tightness, the AUD may face indirect pressure.

While markets have adjusted to a more stable inflation narrative, any divergence in central bank signalling could reignite relative value trades. That said, for now, implied vols appear well anchored. Risk premium remains subdued, offering limited justification for large directional plays unless external shocks occur.

In hedging terms, we may want to reassess depending on the direction of commodity prices, which remain influential. The numbers suggest that the direct pass-through of resource prices to consumer inflation is softening. Should this continue, the bias in swap positioning might lean more defensively, favouring duration over breakeven exposure.

We are watching closely for next quarter’s updates to inflation-linked instruments. Pricing of real versus nominal yields may become more attractive again, but that cross-asset trade hinges heavily on how subsequent CPI signals behave.

In the current window, strategy should remain cautious, with any recalibration grounded in fresh data, not sentiment shifts alone.

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